The Dual Purpose of Internal Accounting Controls - dummies

The Dual Purpose of Internal Accounting Controls

By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

Many internal accounting controls consist of forms to submit and procedures to follow in authorizing and executing transactions and operations. A business’s accounting department records the financial activities and transactions. So, naturally, the accounting department is put in charge of designing and enforcing many core internal controls.

Many accounting internal controls have a dual purpose:

  • To detect and prevent both errors and fraud: For example, employees can be required to punch their timecards on a work clock as they start and end each day, or they can have their hours entered in a payroll log signed by their supervisor. This sort of internal control helps prevent employees from being paid for time they didn’t work.

  • To ensure that the amounts posted to the accounting records are reliable: The clock-in procedure also tells the accountant which expense account to charge for each employee’s time worked and produces a record of the transaction that helps eliminate (or at least minimize) errors in processing the wage data needed for financial records.

    The accounting system of a business keeps track of the large amount of information needed in operating a business, and these internal controls are designed to ensure the accuracy, completeness, and timeliness of information held in the accounting system.

Internal accounting controls need to be kept up-to-date with changes in a business’s accounting system and procedures. For example, an entirely new set of internal controls had to be developed and installed as businesses converted to computer-based accounting systems.

The transition to computer and Internet-based accounting systems brought about a whole new set of internal accounting controls, to say nothing of all the other internal controls a business had to install to secure its databases and communications.